In October 2023, we advised investors to consider selling shares of beer major United Breweries Ltd (UBL) when the stock was trading around ₹1,582. This was after the stock had seen a sharp run-up, valuations were stretched and earnings expectations appeared overly optimistic. We had highlighted that despite its strong market share thanks to Kingfisher being the largest-selling beer in India, UBL was trading at a substantial premium to peers, both domestic and global.
Since then, the stock has risen 21.6 per cent, in line with the broader market (Sensex). However, our concerns around valuation, modest margins and limited pricing power continue to hold. With UBL now trading around ₹1,924 and still commanding an expensive valuation multiple (60 times EV/EBITDA), we believe the risk-reward equation remains unfavourable. We reiterate our earlier stance: investors may consider booking profits and locking in the gains.
The company management continues to highlight long-term growth potential driven by premiumisation, with a target of growing premium beer’s share from 8-10 per cent to 20-25 per cent. However, margin accretion from premiumisation will likely begin only when this segment crosses 15 per cent share, suggesting limited near-term impact on profitability. Also, the UK-India FTA pact is set to impact Scotch whisky and gin prices, and their demand far more significantly than beer prices in India.
Valuation concerns
Shares of UBL, after remaining flat for the last one year, continue to trade at around 60 times EV/EBITDA, based on trailing financials (FY25). This is well above the valuation multiple of United Spirits, India’s largest listed liquor company, which trades at around 38 times EV/EBITDA. It also exceeds Radico Khaitan’s valuation of 52 times.
The bigger issue is that UBL’s current valuation is also significantly higher (~19 per cent) than its own 10-year historical average of 52 times EV/EBITDA. When a company is priced far above both its peers and its own past average, it needs to show sustained outperformance on financial metrics. That is not the case here.
UBL, part of the global HEINEKEN group, has also struggled to deliver consistent earnings growth. The beer industry in India continues to face structural hurdles, including high State-level taxation, strict distribution controls and limited pricing flexibility.
Investors have other choices in the alcoholic beverage space that offer better growth prospects at lower valuations. UBL’s business is largely concentrated in beer, which has not seen the same consumption uptick as spirits.
Lofty expectations
One of the key concerns in our earlier analysis was that consensus EPS estimates for UBL were building in 40-50 per cent year-on-year growth in both FY24 and FY25. In reality, adjusted EPS grew at 25 per cent in FY24 and then the growth rate halved to 12.2 per cent in FY25, as per Bloomberg data.
Even when actual earnings have significantly under-performed consensus expectations, street estimates are now again projecting nearly 43 per cent earnings growth for FY26, followed by around 36 per cent rise in FY27. It’s a wait and watch whether consensus expectations are right this time, but for now it appears optimistic. Hence, the premium valuation for UBL stock based on such estimates offers low margin of safety.
We note that in the past few quarters, UBL has not shown the kind of consistent volume acceleration or margin improvement needed to justify such optimistic earnings forecasts. For example, volume growth was stuck at 5 per cent for Q1 and Q2, before improving to 8 per cent in Q3 and then again dropping to 5 per cent in Q4 of FY25. UBL’s Q1FY26 volume growth shot up to 11 per cent, but this is partly due to a low base in the year-ago period. More importantly, in these five quarters, EBITDA margins have moved from nearly 12 per cent to 8 per cent. In the last quarter, they stood at 11.2 per cent (down 60 basis points year on year). These numbers do not point to a turnaround.
Further with a five-year average EBITDA margin of 9.4 per cent and a slim 4.7 per cent PAT margin, UBL does not exhibit superiority over neither United Spirits (16.4 per cent/10 per cent) nor Radico Khaitan (13.7 per cent/8.2 per cent). While UBL management hopes to improve margins through productivity and leverage, challenges like poor bottle recovery and premiumisation-related cost pressures remain.
Capex plans
UBL is investing in breweries, supply chain and infrastructure to support 10-11 per cent volume growth in FY26 and beyond. However, near-term margins face pressure from bottle mix and duty absorption.
UBL has stepped up capital spending in areas such as new breweries, supply chain infrastructure, visi-coolers, and digital transformation. Capex as a percentage of revenue is expected to rise from low to high single-digits, with a major brewery coming up in Uttar Pradesh. While these efforts support long-term growth, meaningful benefits are unlikely before FY27.
India’s beer market remains underpenetrated (10 per cent of total alcohol consumption) and per capita consumption is lower than many emerging markets. However, that gap has existed for years and has not translated into consistent high growth for companies like UBL. A sharp improvement in beer consumption or a drop in input prices is essential. Without that, expected margin expansion may not materialise for UBL.
Per capita beer consumption (volume) in India has not exploded over the years and stands at 2.1 litres. Between FY15 and FY23, Indian beer market has barely grown at 2 per cent CAGR to hit 330 million cases. So, projections (by Technopak) of beer market sprinting to 480 million cases by FY28 appear unrealistic.
Industry constraints
The company continues to operate in a segment with low pricing power, and bottomline effect of premiumisation trends in beer appear to be moving slowly compared to whisky, for example.
Beer, despite being a lower-alcohol product, often faces the same tax slabs as stronger spirits. This limits its affordability and appeal in many price-sensitive markets.
Moreover, changes in State excise policies and distribution models can directly impact performance. The sector remains vulnerable to sudden policy shifts, delayed approvals and restricted marketing freedoms. Such an operating environment makes it difficult for beer companies to scale efficiently or plan long-term margin improvements.
While there has been some urban adoption of premium beers and craft variants, overall volume growth has stayed modest. Seasonality continues to play a large role and price hikes are often limited.
All this said, we cannot downplay the fact that UBL is a strong brand with a dominant market share in beer. But the stock continues to price in a growth and margin expansion story that has not played out in actual results. Compared to peers, UBL remains significantly more expensive, both on absolute and relative terms.
While UBL’s recent market share gains and structural investments signal long-term commitment, the current valuation already factors in the best-case scenario. Until earnings visibility improves, our view remains cautious.
Published on August 2, 2025
